HMRC revises guidance on checking employment status for tax as part of new tax simplification measures

HM Revenue & Customs has revised the tool freelancers and contractors can use to determine their tax status as part of several measures aimed at simplifying the tax system.

The government encourages workers and employers to use the Check Employment Status for Tax (CEST) tool to determine if a worker on a specific engagement should be classed as employed or self-employed for tax purposes under the off-payroll working rules (IR35).

In its Spring 2025 tax simplification and administration update, HMRC said it is revising the service to "make it easier for CEST's users to use the tool" as well as publishing "revised guidance that offers help on how to answer the revised questions". The updates took place on 30 April.

Since it launched in 2017, CEST has been criticised by several tax experts for its accuracy but HMRC said it is "committed to standing behind the outcomes of this tool where it has been used correctly".

Among the other measures in the tax simplification and administration update were:

Clarifying Self Assessment registration obligations

The government saud "reporting requirements for taxable income must be easy for taxpayers to understand", so HMRC will work with representative organisations to "ensure that guidance on when individuals need to register for Self Assessment is clear".

It will said it will also simplify the language used in HMRC letters.

Guidance for customers in tax compliance checks

The government has launched new interactive guidance for taxpayers who are being checked by HMRC as to whether they are paying the right amount of tax at the right time and/or claiming the right allowances and tax reliefs.

Income tax Self Assessment reporting thresholds

The government confirmed the previously announced rise from from £1,000 to £3,000 in the reporting requirement threshold for the trading income allowance. HMRC says this will remove the requirement for up to an estimated 300,000 taxpayers to submit a Self Assessment return.

The change will happen within the current Parliament, with further detail outlined in the "publication of the transformation roadmap later this year".

Valuation Office Agency

The government will close the Valuation Office Agency (VOA) as a standalone agency and bring its functions into HMRC by April 2026. The VOA values properties for council tax and business rates.

The closure of the VOA is part of the government's wider review of all arm's-length bodies. Other bodies being closed are NHS England and the Office of the Regulator of Community Interest Companies.

Third parties using HMRC guidance in AI services

The government said it will explore how best to help businesses and other third parties leverage official guidance in their own AI-powered products and services.

Delaying mandatory payrolling of benefits in kind

After feedback from accounting and business groups and to give businesses more time to prepare, the mandatory reporting and paying of income tax and Class 1A National Insurance contributions on benefits in kind (BiK) via payroll software will now be introduced from 6 April 2027 instead of 6 April 2026.

Benefits in kind are goods and services provided to an employee for free or at greatly reduced costs.

Capital Goods Scheme simplification

The government will simplify the Capital Goods Scheme, which allows businesses to reclaim VAT on capital items, by removing computers from the assets covered by the scheme and increasing the capital expenditure value of land, buildings and civil engineering work to £600,000 (exclusive of VAT).

HMRC said "this simplification will reduce the number of capital assets that would fall within the Capital Goods Scheme, therefore reducing the administrative burden on small businesses".

Soft Drinks Industry Levy review

The government is consulting on changes to the minimum sugar content threshold at which the Soft Drinks Industry Levy standard rate applies, and the removal of the current exemptions for milk-based and milk substitute drinks with added sugar. It said this is to ensure the levy "continues to encourage reformulation to help tackle obesity".

The consultation runs until 21 July.

VAT treatment of business donations of goods to charity

The government is consulting on the VAT treatment of business donations of goods to charity. The consultation is looking for views on a new VAT relief aligning the treatment of goods donated for distribution to those in need or use by the charity, with the existing relief for goods donated for onward sale.

The consultation runs until 21 July.

The full list of measures in the tax update is here.